The Assets Forfeiture Fund and Seized Asset Deposit Fund (AFF/SADF) is a reporting entity within the U.S. Department of Justice (DOJ). The AFF/SADF were created to serve as repositories for funds seized by participating agencies and the sale proceeds from forfeited property. The proceeds deposited in the AFF are used to cover certain operating costs of the DOJ Asset Forfeiture Program (AFP). These include equitable sharing payments to state, local, and foreign governments; joint law enforcement operations; contract services in support of the program; and satisfaction of innocent third party claims. Operational expenses do not include the salaries and administrative expenses of AFP participants incurred while conducting investigations leading to seizure and forfeiture, and these expenses are not reported in the AFF/SADF financial statements.

This audit report contains the financial statements of the AFF/SADF for the fiscal years (FY) ended September 30, 2007, and 2006. Under the direction of the Office of the Inspector General (OIG), the FY 2007 audit was performed by KPMG LLP (KPMG). The audit resulted in an unqualified opinion on the FY 2007 financial statements. An unqualified opinion means that the financial statements present fairly, in all material respects, the financial position and results of operations of the entity in conformity with accounting principles generally accepted in the United States. For FY 2006, the AFF/SADF, also received an unqualified opinion on its financial statements (OIG Report No. 07-15).

The Independent Auditors’ Report on Internal Control identified three significant deficiencies. The first significant deficiency concerns weaknesses in the seized and forfeited property management environment and was previously reported as a reportable condition in FY 2006, and as a management letter comment in FY 2005. The second significant deficiency concerns weaknesses in the procurement management environment. The third significant deficiency concerns weaknesses in the information system controls environment. The auditors reported no compliance issues for the AFF/SADF in FY 2007.

Effective for FY 2007, the term “reportable condition” was changed to the term “significant deficiency,” and new definitions of material weakness and significant deficiency were introduced in auditing standards generally accepted in the United States. See Government Auditing Standards and Office of Management and Budget Bulletin No. 07-04, Audit Requirements for Federal Financial Statements.

The OIG reviewed KPMG’s reports and related documentation and made necessary inquiries of its representatives. Our review, as differentiated from an audit in accordance with U.S. generally accepted government auditing standards, was not intended to enable us to express, and we do not express, an opinion on the AFF/SADF’s financial statements, conclusions about the effectiveness of internal control, conclusions on whether the AFF/SADF’s financial management systems substantially complied with the Federal Financial Management Improvement Act, or conclusions on compliance with laws and regulations. KPMG is responsible for the attached auditors’ reports dated October 31, 2007, and the conclusions expressed in the reports. However, our review disclosed no instances where KPMG did not comply, in all material respects, with generally accepted government auditing standards.